Harman International (HAR) has dropped some 20% over the last two months, mainly on concerns around slowing growth in Europe. However, the selling seems to overdone as the company sells through to the higher end part of the car market which is holding up better than the overall car market, it has a huge order backlog and rapidly increasing sales in the developing economies. It has also has a cash rich balance sheet as well cheap valuations and should reward patient investors from current price levels.
"Harman International Industries engages in the development, manufacture, and marketing of audio products and electronic systems primarily in the United States, Germany, and other parts of Europe." (Business description from Yahoo Finance)
7 reasons Harman offers solid value at $39 a share:
- The company has a robust balance sheet with over $350mm in net cash (15% of market capitalization)
- Harman has easily beat earnings estimates the past three quarters and consensus earnings estimates have ticked up over the past three months for both FY2012 and FY2013.
- The stock is selling at just over 10 times forward earnings, a large discount to its five year average (20.3).
- HAR is selling considerably under the median analysts' price target on the stock of $53 a share. S&P has a "Buy" rating and a $60 price target on the stock.
- The stock is selling in the bottom third of its five year valuation range based on P/B, P/E and P/S.
- The market seems to undervaluing Harman's growth prospects. The stock has a five year projected PEG of significantly under 1 (.45) and analysts expect over 15% sales growth in FY2012 and around 10% growth in FY2013. YTD sales to the BRIC countries are up 30% and the company has a $14B backlog.
- The company has roughly tripled its operating cash flow over the past three years and recently doubled its dividend payout to 1.6%.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in HAR over the next 72 hours.